School Gives Club of Teens $100,000 to Play in the Stock Market

For many children, one primary exposure to just a piece of financial literacy is the Stock Market Game. The public elementary school I attended pitted a hundred or so fourth-graders against each other. After a few months, the student with the highest overall account value, not taking fees or expenses into account like the real world, was crowned the winner. Money management would not be a topic in the curricula I experienced for the remainder of my public school education.

A private school with a $30 million endowment is taking the Stock Market Game a step further, by giving sixteen-year-olds $100,000, raised by parents, friends and alumni. This investment club will play the stock market with and for real money. The head of the school believes that this type of real-life experience is more effective in education than the funny-money stock market simulation games.

One of the club’s student vice presidents just happens to have a father who is on the school’s own investment committee — a group of adults who manage the school’s endowment. The club’s original idea to manage a small portion of the school’s endowment was met with a cold response, so the school raised the money specifically for the club.

Real money means real consequences.

The stakes are higher, and knowing that the students could lose real money might help them take a more conservative approach to managing money and taking less risk. Yet, this $100,000 was given to them. They didn’t have to work to earn this money; they did nothing but ask for $30,000 to $50,000, and they were pleasantly surprised when $100,000 fell in their laps.

The stakes are higher than those for students playing the Stock Market Game in fourth grade, but they aren’t real-world stakes. Managing other people’s money, while an important role, is not the same is managing one’s own money. The skills they might be learning might help them prepare for a career as an investment manager, but might not lead to any positive skills for household money management.

The students could be ignoring social responsibility.

Due to their environment, these students might not have any idea how privileged they are. Unless the club has a faculty adviser who endeavors to teach more than just trading in the stock market, they might miss an important concept when dealing with money. There are so many struggling high schools in this country, both public and private.

While $100,000 in one community could help a struggling school afford basic educational necessities or could help an overcrowded school hire an additional teacher, the money raised here is designated for teaching one lesson that may not be all that necessary. It’s somewhat of a false argument; anytime you spend money you could ask yourself what right you have to spend it when there are children in the world who desperately need it to survive, but continually framing spending decisions in that manner will surely lead to insanity.

Generally, people make up for the guilt by being socially conscious, at least when they’re aware of their privilege.

Trading in the stock market is not investing.

If the students truly want to take a long-term view, they’d be less concerned about beating the school’s own investment committee. Various studies have shown that people simply can’t, over time, beat market indices. They should be investing in index funds, full stop.

If their investment-manager parents and the club’s adviser aren’t leading them in this direction, the students should at least be learning how investment managers and the financial industry do make money — through transaction fees, load fees, and management fees, all which come out of customers’ pockets regardless of whether the investment choices overperform or underperform.

Stock picking is no better than gambling. That doesn’t mean you shouldn’t invest in individual companies, but it generally works out for the best if you can invest like Warren Buffett: invest enough money to have a say in the company’s operations, or invest in preferred stock so you receive a better deal than other investors.

Overall, the club’s investment philosophy isn’t terrible. It’s better than most individual investors. Even just having a philosophy sets them apart.

The club’s 30 students outlined an investing policy, which limited them to companies worth at least $1 billion. Diversity was also key to their plan. They decided to take stakes in two companies across six sectors… and not allow any single company weigh more than 15% of their entire portfolio… So far, they’re down about $2,500… Though the recent ups and downs in the market make the students anxious, they remain optimistic and are maintaining a long-term view… The students admit they can be a bit obsessive about checking on the portfolio’s performance multiple times a day, but who wouldn’t be? The students also plan to rebalance the portfolio every six months to a year.

Jobs in the investment management field could well be in their future.

How do you feel about this school’s decision to raise $100,000 for its investment club? Are the students learning good financial lessons?

The other aspect that usually makes stock market games a poor lesson is that the students are essentially required to invest in the stock market (if they want to win) but the game is too short term for such an investment to be wise.

For the students in the story, unless the $100,000 is going to turn into an endowment itself, to be managed by the club (as students come and go) long term, it will fall into that same trap.

Although I think there will be a good lesson here, it is a little like day trading. They will be focused on short term results versus long term strategy. If they look at the funding similar to an endowment and want it to last, they should have a long term strategy. $100K seems like a lot of money for just one class!.

I think it has the potential to be a valuable lesson for them, though I really have to wonder if $100K is just a bit much for one class. My concern, like KC, would be that it could lean towards day trading as opposed to something more long term in nature.

I’d much rather see them planning out a household budget and combine the fictional side of the money game with the real world cash. They could be given hypothetical jobs with salaries and must operate a household budget with that income. As part of that they should learn the value of saving for emergencies, purchases, and the future. They should set up 15% of their income to be used for investing and if they’d like to place that into the market then great! When the student graduates, any gains they’ve seen can be kept but the original principle (or the remainder if there was a loss) gets put back into the school.

It may help to teach them some of the basics….however…..it is very different when you are investing money that you had to work hard for and earn. I believe that your mindset is entirely different—-you are much more averse to seeing any losses—–and a bit more likely to panic when things don’t go well.

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About Luke Landes

Luke Landes founded Consumerism Commentary in 2003 and has been building online communities since 1990. Luke has contributed to PC World Magazine, US News, Forbes, and other publications. Read more about Luke and about Consumerism Commentary.

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